AIMM Sector Framework Brief
Sector Economics and Development Impact Department
International Finance Corporation

INSURANCE AND PENSION FUNDS
February 2019

Development Impact Thesis – IFC’s operations for insurance and pension funds promote access to affordable, quality insurance andpension products, and enhanced roles for insurers and pension funds as contractual savings institutions. IFC provides financing andadvisory services to firms in the insurance and pension funds sector which:→ Increase access to insurance and pension
products for households and firms, including
through consumer financial education→ Improve the quality and affordability of insurance
and pension products→ Improve the capacity of insurers and pension
funds to act as contractual savings institutions

Project
Outcomes→ Increase the number of privately managed,
solvent insurers and pension funds→ Improve the number and reach of products
available to underserved segments→ Promote regional platforms/cooperation→ Increase connectivity by boosting investment
capacity to diversify into new asset classes

Contributions toMarket Creation

Development Gaps Addressed• Limited tools to support risktaking and economic activity• Limited risk mitigation products
for households (e.g. healthinsurance, home insurance)• Few tools to manage natural
disasters/catastrophes• Underdeveloped local
institutional investor base (“buyside”) and shallow capital
markets

Rating Construct – All AIMM sector frameworks include detailed guidance notes that help define project outcomes and contributions
to market creation, aggregating to an overall assessment of development impact.
•

For project outcomes, stakeholders, economy-wide, and environmental effects are the key components for which industryspecific benchmarks define the context in which an IFC operation seeks to drive changes. This gap analysis is combined with aseparate set of impact intensity estimates that specify the expected results using predefined indicators.

•

For contributions to market creation, industry-specific market typologies define stages of development for five market
attributes (or objectives): competitiveness, resilience, integration, inclusiveness, and sustainability. These market typologies,
when combined with estimates of how much an intervention affects the development of a market attribute, provide thefoundation for IFC’s assessment of an intervention’s market-level potential for delivering systemic changes.
PROJECT OUTCOME INDICATORS
Effect on customers: accessibility• Number of policy holders; total amount of claims paid; number of new
pension fund participants reached• Number/proportion of new policy holders reached by delivery channel/by
niche product• Number of insurance products per insurer client• Average number of days from application to approval

Stakeholders

Effect on customers: affordability• Flexible payment options available, such as mobile phone top-ups• Increased premium transparency• Improved delivery efficiency and reduced cost to insure clients due tofintech/innovations

CONTRIBUTION TO MARKET CREATION INDICATORS

CompetitivenessResilience• Promotes higher standards• Contributes to further diversification of local institutional investor baseIntegration• Expands geographic presence and reach• Promotes increased market efficiency/strengthens supervisory/capacity and knowledge
through global/regional platforms• Promotes adoption of products built into value/supply chains, enhancing customer access• Increases partnerships with/distribution of products through financial institutions• Develops these FIs as asset managers: Facilitates more diversified portfolio approach

Effects on customers: quality• Average number of days for payout to policy holder• Number/proportion of innovative channels for delivery and marketing• Expanded (financial literacy and/or non-financial) services offered
Effects on employees• Number of employees trained/improving skill set• % women in management/senior positions• % women participating in boards• % women employed• Adopts models/products/processes to reach underserved or vulnerable groups• Fosters capacity building/awareness of insurance products for underserved• Introduces/strengthens market-enabling frameworks/standards supporting insurance
Inclusiveness• Increased economic activity• Increased savings
Economy-wide• Encourages entry of new participants in emerging insurance markets• Reduces number of players in fragmented sector by encouraging consolidation• Increases private sector participation in insurance market• Introduces innovative insurance products/distribution geared to specific needs• Introduces new channels for delivering and marketing products (digital finance)• Affects affordability of/access to insurance services within market broadly

Sustainability• Promotes/strengthens market-enabling frameworks/standards related to sustainability
that enable risk reduction, management of ESG risk/opportunities• Promotes adoption of sustainability principles and practices in underwriting andinvestment; provides innovative products; raises insurers’ awareness of sustainability
risks and shares information to help them manage risk and develop solutions

IFC’s Environmental and Social Performance Standards define IFC clients’ responsibilities for managing their environmental and social
risks. While for most IFC investments, meeting Performance Standards reflects improved environmental and social performance,
effects from implementation of the standards are only claimed in the AIMM framework where a clear counterfactual can beestablished and where the investment intent is to improve environmental or social outcomes.
Sector Specific Principles or Issues – The following principles will be applied for projects rated under this framework:
Principle or
Issue

Treatment Under Framework

Capital market
development

Pension funds and insurers (particularly life insurers) play a potentially pivotal role in domestic capital market development, withknock-on implications for financing infrastructure in emerging markets. This is because these contractual savings institutions tend
to have liabilities that are long-term and are thus well suited to investing in asset classes with similar long-term maturities such as
bonds financing infrastructure projects.

Underserved andvulnerable populations

Even in scenarios where insurance services have expanded to reach a large portion of a country’s population, there may besegments of largely underserved or excluded populations (e.g. women, rural populations, refugees, youth, etc.) lacking access tothe insurance market and the formal economy overall.

Innovativetechnologies

The increased competitiveness and new business models spawned by new technology can potentially benefit large numbers ofunderserved individuals and firms currently excluded from insurance markets. IFC projects employing digital financial services canenable insurers to reach new customers—to deliver as well as promote these products.

Marketstructure

Some markets may be highly concentrated and state-dominated, particularly for nascent pension fund sectors, with just a few oreven one monopolistic player providing costly, inefficient services. This market scenario typically benefits from new entrants
offering quality, accessible and affordable services. In other markets, insurers are facing pressure to consolidate, however.

Treatment ofnegative effects

Potential negative effects from a pension or insurance project may include (i) introducing a product innovation (e.g., fintechenabled marketing and/or delivery) in a market context that lacks adequate and clear underpinning regulations including for
consumer financial protection and financial education, (ii) instances where IFC provides financing in hard currency that may
expose the client financial institution to currency risks where end beneficiaries (i.e. households and firms) earn theirincome/revenues in local currency, thereby reducing project likelihood and market resilience, and (iii) IFC reinforcing the positionof the dominant player, thereby diminishing market competition significantly. Under the AIMM system, when these negative
effects are large, the assessment seeks to balance these against positive effects.

Project Outcomes – The AIMM system considers the extent of the development gap and uses a gap analysis to classify project contexts
according to the size of the deficit/gap being addressed. For each indicator, the size of the gap is measured in relation to development
goals associated with the sector. Contexts are classified into very large, large, medium or low gap, for each performance dimension.
Development gaps are defined using a combination of qualitative and quantitative benchmarks, which leaves room to consider
context-specific attributes that drive investments in the sector.
COUNTRYCONTEXT

Access

Quality

Low Gap

Medium Gap

Large Gap

Very Large Gap− Insurance coverage is high:a large share of the
population has easy accessto a diverse range of
insurance products− Insurance coverage ismedium: a considerable
share of the population has
insurance coverage− Access might be somewhat
limited by product orgeographic location;
approval processes are
somewhat efficient− Insurance coverage islimited: internal approval
processes are slow
− Access faces considerable
geographical and/or
product specific restrictions− Insurance coverage is very
low/non-existent: only asmall share of the
population has access toinsurance products− Insurance approval
processes are not efficient,taking several days tocomplete− There are many ways toaccess insurance products− There is overall knowledge
about financial/insurance
products across the
population− Payout processes are
efficient− There are a few different
ways to access insurance
products− There is some knowledge
about financial/insurance
products across the
population− Payout processes are
somewhat efficient− There are only a few ways
to access insurance
products− Knowledge about
financial/insurance
products across the
population is limited− Payout processes are
slow/inefficient− Means of accessing
insurance products are very
limited/non-existent− There is substantial lack ofknowledge regarding
products− Payout processes are highly
inefficient, slow, nottransparent

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COUNTRYCONTEXT

Low Gap

Medium Gap

Affordability− Insurance policies are
priced fairly andcompetitively− No barrier to access toinsurance due to pricing− Flexible payment/delivery
channels broadly available− Insurance policies aremostly priced fairly andcompetitively− Flexible payment/delivery
channels are offered

Large Gap

Very Large Gap− Insurance policies are− Insurance costs are
expensive, limiting access toprohibitively expensive for
insurance
most people and products− There is low diversification− There is no diversification ofof payment/delivery
payment/delivery channels
channels“Core outcomes” for insurance and pension fund operations include improvements in access to insurance and pension funds, both inquantity and in quality, as well as increased affordability of these products. While the objectives of access, quality, and affordability
are often shared by insurance and pension projects, their products vary, and these differences are reflected in their indicators. The
main drivers of the overall project outcome potential are:•••Access, which refers to the availability of insurance and pension products;
Quality, which can be characterized by factors including insurance claims processing times and financial education; andAffordability, which is important in many emerging markets, especially (but not only) where public health insurance is lacking.

Strategic Indicators to be tracked and reported for all insurance and pension fund operations include: (i) number of customers
reached (insurance policy holders or fund participants), and (ii) number of claims paid. All projects will be reporting genderdisaggregated data for the strategic indicators. One non-core effect is improvement through a project in insurer (fund) employees’capacity and skills for executing investment strategy/risk management capabilities, which is important in developing the roles of thesefinancial institutions as asset managers and contractual savings institutions.
An IFC operation’s project-level impact is assessed based on the magnitude of its effects in relative terms: i.e., using a normalization
rule that provides an indication of the intensity of impact (e.g., impact per dollar invested). The table below summarizes the impact
intensity assessment categories.
PROJECTINTENSITY

Below Average- No or very limited effect on
Accessreaching new policy holders• Number of policy- No or very limited effect onholders reachedreaching new insurance• Number/proportion of customers by increasing
tailored products
new policy holders- No or very limited effect on• Average days fromincreasing access of existing
application topolicy holders to new
approval
products- No change in application
process through use oftechnology

Quality• Time to claims payout• Improved delivery
channels• Improved awareness/understanding of
insurance products• Expanded nonfinancial services
offered- No reduced time requiredfor policy payout- No or very limited effect onchannels for delivery andmarketing of insurance- No change in customer
experience- No change in knowledge/
awareness of insurance
products- No change in non-financial
services offered to client
customers

AverageAbove Average

Significantly Above
Average- Limited effect on reaching
new policy holders- Limited effect on reaching
new insurance customers byincreasing tailored products- Limited effect on increasing
access of existing policy
holders to new products- Limited reduction incomplexity of application
process through use oftechnology- Some effect on reaching
new policy holders- Some effect on reaching
new insurance customers byincreasing tailored products- Some effect on increasing
access of existing policy
holders to new products- Some reduction incomplexity of application
process through use oftechnology- Considerable effect onreaching new policy holders- Reaches new insurance
customers by increasing
tailored products- Considerable effect on
increasing access of existing
policy holders- Considerable reduction incomplexity of application
process through use oftechnology- Small reduction in timerequired for policy payout- Limited effect on channels
for delivery and marketing of
insurance- Limited improvement inknowledge/awareness of
insurance products- Limited change in nonfinancial services offered toclient customers- Somewhat reduced timerequired for policy payout- Some effect on channels fordelivery and marketing of
insurance- Some improved knowledge/
awareness of insurance
products- Some increase in nonfinancial services offered toclient customers- Considerably reduced timerequired for policy payout- Considerable effect onchannels for delivery andmarketing of insurance- Considerable change incustomer experience- Significantly improved
knowledge/awareness of
insurance products- Considerable increases in
non-financial services
offered to client customers

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PROJECTINTENSITY

Below Average

Average- No improvement in flexibility - Limited improvement in
Affordabilityof payment options or
flexible payment options• Increased flexibility intransparency of premiums
and/or limited effect on
payingcompared to market averagepremium transparency
premiums/enhanced - No improvement in delivery - Limited improvement inefficiency (and related costdelivery efficiency (andpremium
to insurance clients) via
related cost to insurance
transparency
fintech/other innovations
clients) via fintech/other• Improved delivery
innovations
efficiency throughinnovation

Above Average

Significantly Above
Average- Somewhat more flexible- Significantly more flexible
payment options and/or
payment options andimprovement in
improvement intransparency of premiums intransparency of premiums
comparison to market
compared to market average
average- Significantly improves- Somewhat improves delivery
delivery efficiency (andefficiency (and related cost
related cost to insurance
to insurance clients) via
clients) via fintech/otherfintech/other innovations
innovations

The AIMM methodology considers the uncertainty around the realization of the potential development impact being claimed, making
a distinction between the potential outcomes that a project could deliver and what could be realistically achievable in the project’s
development context. The table below presents the key types of risks factors for insurance and pension fund operations.
PROJECT
LIKELIHOOD

Operational Factors

Sector Factors

Assessment
Considerations• Experience and track record of the NBFI in the target market(e.g., life vs non-life)• Project’s projected growth relative to the recent history• Insurer’s current stage of development and its plans• Expansion into markets (e.g. new customer segment),delivery using new channels (e.g. digital delivery), or other
innovations in product/service design.
• Risks from new line of business (e.g. general financing
institution building a pension fund business)• Advisory service that mitigates any of these operational risks• IFC’s past relationship with FSP and IFC’s experience on
project specifics• Target sector’s market risks (e.g., lack of product awarenessand understanding/cultural reluctance to take up insurance
products; impact of changing demographics; impact oftechnological change on the sector)• Specific regulatory risks (e.g., lack of actuarial standards anddata; compliance-driven pressures; regulatory restrictions
impeding institutional investors from diversifying into newer
asset classes)• Supervision perimeter and capacity (e.g., underwriting
standards, consumer financial protection requirements)• Supporting government policies and programs (e.g.,
promotion of private health insurance and private providers)Contribution to Market Creation – The “market” is defined as the life and/or nonlife insurance subsector1 (pension fund market) inemerging markets, with a primary focus on insurance firms (pension funds) as providers of financial services and a secondary focus on
these financial institutions (FIs) as asset managers. Insurance sectors in many emerging markets still tend to be dominated by nonlife
insurance and low- and lower-middle income countries tend to be characterized as having comparably low penetration rates due tolack of consumer awareness and high costs. Young populations and strong economic growth hold promising potential to buoy
development of insurance and pension industries across many emerging markets, however. As contractual savings institutions,pension funds and life insurers tend to have liabilities that are long-term and well suited to investing in asset classes with similar longterm maturities such as bonds financing infrastructure projects. Pension funds and life insurers, in an appropriate macroeconomic andfinancial system context, therefore potentially can play an important role as asset managers in developing the buyside of local (and,possibly, intraregional) capital markets.
IFC’s insurance projects vary considerably in size and scope. However, even when IFC’s projects are small relative to the size of theinsurance market in a country, they may provide targeted interventions to elicit positively reinforcing reactions from other market
players, and thus make meaningful contributions to market creation. For IFC’s insurance and pension fund operations, market
competitiveness, integration, and inclusiveness are among the primary attributes.

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Within the insurance sector, the major subsectors include life, health, disability, auto, and home/property. Each can have its own
distinct drivers of demand, complicating cross-country benchmarking of the market typology.

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MARKETTYPOLOGY

HighlyDeveloped

Moderately
Developed− Large number of players
relative to comparable
countries in region− Well distributed, efficientand less costly relative tocomparator countries− Well-developed privately
managed pension funds(insurers) with welldiversified range of players
and product offerings− High product differentiationand tailoring to needs− Delivery channels andbusiness models reach,meet needs of wide rangeof clients/market segments
including underserved− Cost not considered asignificant barrier to accessfor most target clients− Delivery models andproducts have evolved toenable players to serve
underserved clients− Somewhat concentrated,less efficient, and costly
relative to regional or othercomparable countries− Limited private-sector
participation as regulationand market situation makes
it difficult for companies tocompete with state-owned
players− Entry and exit heavily
regulated and restricted− Market has achieved
moderate level of productdifferentiation with accessfor broad segments− Insurers [pension funds]
growing and improving
delivery channels andbusiness models including
to reach underserved− Cost still significant barrier
to access for portion oftarget clients but
moderately allows smallvalue transactions− Highly concentrated,inefficient, and costly sector
relative to regional and/or
other comparable countries− Low private sector
participation, heavily
concentrated, remains
dominated by statedowned pension funds− Market offers basic services
taken up by higher-income
individuals and/or large
firms− Large segments of
population underserved− Distribution channels andmarketing reach limited/
geared to higher-income
individuals and large firms− Cost considered a barrier toaccess for majority/
impedes small valuetransactions

Integration− Linkages with other sectors
highly developed− Capital markets relatively
deep and liquid− Insurers and pension funds
diversify across range ofasset classes including into
listed corporate bonds andequity securities− Full or nearly complete
domestic geographic
coverage− International
integration/cooperation
linkages are highly
developed (for capacity
building, knowledge
exchange, on supervisory
aspects)− Linkages with other sectors
emerging− Capital markets deepening,larger privately managed
pension funds (insurance
firms, life insurers) havebegun to diversify someassets into listed securities− Country has limited
geographic coverage withconcentrated geographic
presence of several insurers− International
integration/cooperation
linkages (for capacity
building, knowledge
exchange, on supervisory
aspects) are average forcomparable countries− Underdeveloped linkages− Market operates withoutwith other sectors
linkages to financial
institutions and other− In general, insurers andsectors in the economy
pension funds do notdiversify into portfolio− No pension funds and/or
securities
insurers invest in securities
listed on capital markets− There is very limited
domestic geographic− There are no international
coverage
integration/cooperation
linkages. Insurance sector− Regional/global
operates in domestic
integration/cooperation
isolationlinkages (for capacity
building, knowledge
exchange, on supervisory
aspects) are notcommon/well developed:
Insurance sector is weakly
linked to this sector in othercountries

Inclusiveness− Delivery channels and− Insurers (pension funds)
business models reach andgrowing/covering larger
meet the specialized needs
share of population andof wide range ofimproving delivery channels
clients/market segments
and business models
including the underserved
including to reachunderserved, and/or− Reasonably good awarenessremote clients
of/access to insurance
products by financially− Moderate capacity building
underserved groups
for/awareness of insurance
products for/by financially− Adequate market-enablingunderserved groups
frameworks/standards
incentivizing insurance to− Market-enablingunderserved groups exist.
frameworks/standards thatincentivize provision of
insurance products tounderserved groups are
inadequate but also not ahindrance

Competitiveness

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Underdeveloped− No insurers have specificproducts and/or processes
that target underserved
groups− Lack of awareness of
insurance (pension)
products by underserved
groups− Lack of capacity building
for/awareness of insurance
products for/by financially
underserved groups− Market-enabling
frameworks/standards thatincentivize provision of
insurance products tounderserved groups are
inadequate/lack thereof is ahindrance

HighlyUnderdeveloped− No market or market
includes only one operator,
typically a state-owned firm
− Entry and exit heavily
regulated/ restricted,
impeding emergence of
insurers (pension funds)
and maintaining dominanceof few state-run funds
or: Extremely fragmented
market with very large
number of inefficient
insurers unable to meetcompliance standards− Large parts of society
underserved or not reachedbecause of lack of tailoredproducts and/or
distribution channels,
awareness− Current delivery/marketing
channels to reach newmarket segments
inadequate− High cost considered barrier
to access for all or nearly all
target clients− No pension fund (insurer)
targets or serves financially
underserved groups orvulnerable populations− Frameworks/practices/standards are non-existentIn general, most individual projects are not expected to make a significant and immediate systemic market change, unless the projectis a pioneer in a non-existent or nascent market. Instead, most projects are expected to have incremental effects on the market. In
other words, it takes more than one intervention to move a market to the next stage. This means that integrated and concerted
efforts are often needed to generate substantial market effects. For example, cumulative World Bank Group efforts over time will
have a stronger effect on markets than non-integrated and non-concerted interventions. Where a project is explicitly part of aprogrammatic approach, the expected movement induced by the program should be the basis for the assessment where timeboundmovements, market effects, and indicators are available. The most important market creating effects from IFC’s insurance andpension operations are:
MARKET
MOVEMENT

Marginal

Meaningful

Significant

Highly Significant

Competitiveness

Example – The first privately-managed pension fund enters the market alongside the state-run pension fund, increasing market
competitiveness that would move the market from “Highly Underdeveloped” to one that is “Underdeveloped.” This constitutes a“Significant” movement and yields a market potential of “Very Strong”.

Integration

Example – A life insurer is building up its asset management capacity and intends to hold up to 10% of its portfolio in long tenor
corporate domestic bonds in a market where all other insurers hold government securities only. This could move the market from
“Underdeveloped” to “Moderately Developed”, a “Significant” market movement that is assessed as “Strong”.

Inclusiveness

Example – A local pension fund provider expands its product beyond permanent employees of international and large corporates toall employees in the formal sector including those in SMEs, potentially moving the market from the “Underdeveloped” to“Moderately Developed”. This is a “Meaningful” movement. This was assessed to yield a market potential of “Strong” due to thepotential expansion of access and size of the movement within the market stage.

The market likelihood adjustment follows the principles for the likelihood adjustment for project outcome potential. In general, thelikelihood assessment includes sector-specific, as well as broad country risks that may prevent potential catalytic effects fromoccurring, plus political economy or policy/regulatory risks that may constrain market systemic change. Due to the diversity of market
creation attributes and channels, most of the likelihood factors are expected to be sector, or intervention specific.
MARKET
LIKELIHOOD

Sector Factors

Political / Regulatory / Policy Factors• Government commitments and supporting policies/programs(e.g., capital market development, health insurance)• Government capacity to implement policies and programcommitments and track record• Regulatory scope and capacity (e.g., for new products and/or
new regulatory frameworks that need to be established)

Assessment
Considerations• Concentration in the insurance or pension sector/pressure toconsolidate fragmented sectors• Responsible finance culture and transparent pricing• Availability of qualified professionals (e.g., actuaries)• Appropriate level of technology available in the market• Strength of the channel for competitive pressures andincentives to adopt innovations• Consumer awareness of insurance and pension products• Capital markets context with an enabling policy, regulatory
framework, and institutional capacity• Awareness among marker participants of underserved
segments and their specific product needs• Regulatory scope and capacity (e.g., new, appropriate
regulatory framework for fintech; regulations that support awell-functioning sector)

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